Postal Service losing big on Alaska deliveries

Monday

Jun 30, 2014 at 12:01 AMJun 30, 2014 at 10:36 AM

HOOPER BAY, Alaska - In the soggy, unforgiving tundra on the shores of the Bering Sea, Royala Bell defrosts a rack of beef ribs for dinner in a kitchen that doubles as a bedroom for six of her seven children. A dead owl lies on the floor, ready for her husband, Carlton, to defeather it for a headdress. Fish dry on a line out back, for the larder in winter. On a small counter are some of the groceries the Bells consume from the Lower 48: Sailor Boy Pilot Bread, potatoes, Kool-Aid, Aunt Jemima pancake mix and a can of Coca-Cola.

HOOPER BAY, Alaska — In the soggy, unforgiving tundra on the shores of the Bering Sea, Royala Bell defrosts a rack of beef ribs for dinner in a kitchen that doubles as a bedroom for six of her seven children.

A dead owl lies on the floor, ready for her husband, Carlton, to defeather it for a headdress. Fish dry on a line out back, for the larder in winter. On a small counter are some of the groceries the Bells consume from the Lower 48: Sailor Boy Pilot Bread, potatoes, Kool-Aid, Aunt Jemima pancake mix and a can of Coca-Cola.

The strapped U.S. Postal Service paid to ship the items on a turboprop bush plane to this small settlement of Yupik Indians on Alaska’s western edge. The Bells brought them home from Hooper Bay’s only grocery store.

Under a federal subsidy program exclusive to Alaska, the Postal Service is responsible for shipping more than 100 million pounds a year of apples, frozen meat, dog food, diapers and countless other consumer items to off-road villages in the sparsely populated outposts known as the bush. During three decades acting as freight forwarder, the agency has lost $2.5 billion.

In many ways, the Alaska Bypass, as it’s called, keeps Hooper Bay and 100 other isolated areas in rural Alaska afloat. But groceries do not come cheap for Bell, 43, who pays highly-inflated prices.

Rural Alaskans are not the only ones paying a steep price. The system cost the Postal Service $77.5 million last year, agency officials said.

Because of the subsidy, retailers pay the Postal Service only about half of what it would cost them to ship the goods commercially, then turn around and charge a hefty markup, in some cases 30 percent or more. And the Postal Service, by law, must pay private air carriers well above market rates in the only corner of the country where airline prices are still regulated.

The late Sen. Ted Stevens, R-Alaska, pushed an earmark through Congress 33 years ago aimed at helping his constituents back home, and, despite critics’ efforts, the Alaska Bypass has been untouchable since. Politicians from other rural states fear changing it could be the first step toward scaling back mail delivery to other far-flung places.

Royala Bell paid $15.15 for a 12-pack of Coke. The pallet on which it came cost the Postal Service nearly $3,200 to fly here, according to analysts at Anchorage-based Northern Economics. In return, Alaska Commercial put about $485 in postage on the shipment. Not only is this well below commercial rates, it’s even less expensive — about 20 percent less per pound, postal regulators say — than customers anywhere else in the country pay to send a package via parcel post.

When Rep. Darrell Issa, R-Calif., chairman of the House committee that oversees the Postal Service, proposed relieving the Postal Service of some of the costs of the Alaska Bypass, Alaska’s two senators, Republican Lisa Murkowski and Democrat Mark Begich, lobbied senators from other rural states to leave the Bypass alone.

At a hearing on Issa’s bill in March, he highlighted a report from the Postal Service inspector general, who suggested that Alaska, with more airports than roads, should build more roads so items could be delivered more cheaply by truck.

As part of its obligation to provide universal delivery, the Postal Service often uses other means to reach places where letter carriers can’t drive. But only in Alaska do packages weighing at least 1,000 pounds — 930 pounds above the heaviest parcel-post box allowed in the Lower 48 states — count as a universal service.

The rates the airlines charge the Postal Service are set by the Department of Transportation, based on costs submitted by the airlines for fuel, labor, maintenance and terminal fees, DOT officials said. The government calculates the rates so the airlines on average make an annual profit of 15.5 percent. Carriers with below-average costs make even more. Commercial airlines struggle to hit profit margins of 2 or 3 percent.

And at Swanson’s supermarket in Bethel, there is a full-service deli, toys, clothes, fresh lettuce and other produce, and of course Coke — all delivered via the Bypass program. Store manager Jeff Haglund said he can make a 31 percent markup on the soda.

“The largesse of the Postal Service,” he said, laughing.

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